How to Short Sell on Robinhood
- Open a Margin Account. Short selling involves selling stock you don’t own, which means you’ll need to borrow it from your broker.
- Identify a Short Sale Candidate. Once you have a margin account with a broker that offers short selling, your next step is to open a short position.
- Define Your Exit Strategy. ...
- Open a Short Position. ...
- Cover the Position. ...
Does Robinhood let you short stocks?
While various other brokers offer this facility, Robinhood does not allow its users to short sell a stock. But, as a trader or investor, the stock market provides amazing opportunities to profit from short selling. We’ll discuss some methods and alternatives to shorting a stock on Robinhood.
What are the best penny stocks to buy on Robinhood?
Stocks Under $2 on Robinhood to Watch
- AgEagle Aerial Systems (NYSE: UAVS)
- Waitr (NASDAQ: WTRH)
- Camber Energy Inc. (NYSE: CEI)
Can You short sell on Robinhood?
While that may be an advantage, you still can’t short sell a stock on Robinhood. So short selling is not possible on this trading platform. While various other brokers offer this facility, Robinhood does not allow its users to short sell a stock.
Are penny stocks on Robinhood worth buying right now?
When you find penny stocks to buy right now, you may also need to babysit your account in the meantime and/or sell just as quickly. Not every penny stock is an equally good investment. Penny stock trading is risky by nature — but you can limit your risk.
What does short selling do to a stock?
Short sellers are wagering that the stock they are short selling will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and returns it to the lender. The difference between the sell price and the buy price is the short seller's profit.
How much do you need to short on Robinhood?
This differs from position to position but usually margin maintenance requires that you have 25% to 35% of the total value of the position in account equity. If you own $10,000 worth of Stock XYZ, a 25% maintenance would mean you need at least $2,500 in your Robinhood portfolio at all times.
How do I short sell on Robinhood?
Shorting stocks on Robinhood is not possible at present, even with a Robinhood Gold membership, the premium subscriptions which allows Robinhood investors to use margin for leveraging returns. Instead, you must either use inverse ETFs or put options.
Does Robinhood lend out your shares?
This month, the company announced a new stock lending program, in which customers can lend shares of companies they own to other market participants while collecting a percentage of the fees.
What Is Short Selling?
Short selling, also known as “going short,” is a trading strategy that allows you to profit when the share price of a specific stock falls.
Can You Make a Short Sale on Robinhood?
Strictly speaking, no, you cannot short sell on Robinhood. Robinhood recently introduced margin accounts that allow borrowing stocks on credit, but they are explicitly designed to not allow shorting. So if you want to take the traditional route of shorting stocks, you’ll need to find a brokerage that accommodates this type of action.
Short a Stock on Robinhood: Inverse ETFs
Inverse ETFs, also known as “Bear ETFs” or “Short ETFs,” are funds that are constructed out of different types of derivative securities. ETFs are designed in such a way that their derivative composition will appreciate in value when the target security’s stock price drops.
Using Options to Short Sell on Robinhood
You can also trade options to profit when a stock’s price falls. Options are contracts that give investors the right, but not the obligation, to buy or sell a specific security.
Can You Short on Robinhood: Final Thoughts
To summarize: Technically, you cannot short sell stock on Robinhood. Their margin accounts are not set up to allow the kind of trading that is associated with direct short selling.
What is Short Selling?
Short selling is the investor’s version of betting against a stock. If you think a stock is significantly overpriced or you anticipate news that will cause a major decline, you can borrow shares of that stock to sell at the current high price.
Step 1: Open a Margin Account
Short selling involves selling stock you don’t own, which means you’ll need to borrow it from your broker. You can’t do that with a standard brokerage account. Instead you need what’s called a margin account.
Step 2: Identify a Short Sale Candidate
Once you have a margin account with a broker that offers short selling, your next step is to open a short position. A good candidate for a short sale is a stock that’s experiencing a sudden and dramatic price increase that can’t be explained by any significant changes to its financials.
Step 3: Define Your Exit Strategy
One of the biggest mistakes new investors make in both long and short positions is opening a position without having a clear and specific exit strategy. If you’re not buying and holding, you need to know exactly when you will get out of a position.
Step 4: Open a Short Position
After identifying a prime candidate for a short sale and deciding exactly when you’ll exit, you’re ready to open a short position. If you don’t own the shares, you will borrow them from your broker and immediately sell them at their current price.
Step 5: Cover the Position
The final step in a short sale is to “cover” the position. This just means buying back the same number of shares you borrowed after the price (hopefully) decreases. Once you buy them, the broker will immediately take the shares and any fees.
Robinhood Alternatives
Robinhood is great for beginners and mobile traders, but if you’re interested in short selling, you need to look elsewhere. Robinhood doesn’t offer it.
What is Short Selling?
Short selling is a form of betting that a stock will lose value rather than gain it. When you short sell a stock, you borrow the shares from your broker and then sell them immediately. Later, you’ll need to repurchase the shares to return them to your broker.
Why Short Sell a Stock?
The main reason to sell a stock short is because you believe the price will go down. You might think the stock is overvalued and that the price is due for a correction. Or, you might expect that a company will underperform during its next earnings report and the stock price will tumble as a result.
Can You Short on Robinhood?
Although Robinhood is one of the most popular brokers for buying and selling all kinds of stocks, from penny stocks to ETFs, it does not allow short selling. There are other ways to bet against a stock on Robinhood – which we’ll get into below – but short selling isn’t supported on the platform.
Conclusion: Can You Short on Robinhood?
Although Robinhood doesn’t allow traders to short sell stocks, it’s still possible to bet against the market with this brokerage. You can buy put options to bet that the value of individual shares will fall, or you can buy inverse ETFs to place a bearish bet on the major US stock indices.
A Beginner's Guide for How to Short Stocks
Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm.
Why Sell Short?
Usually, you would short stock because you believe a stock's price is headed downward. The idea is that if you sell the stock today, you'll be able to buy it back at a lower price in the near future.
How Shorting Stock Works
Usually, when you short stock, you are trading shares that you do not own.
What Are the Risks of Short Selling?
When you short a stock, you expose yourself to a large financial risk.
How Is Short Selling Different From Regular Investing?
Shorting a stock has its own set of rules, which are different from regular stock investing, including a rule designed to restrict short selling from further driving down the price of a stock that has dropped more than 10% in one day, compared to the previous day's closing price. 4
Frequently Asked Questions (FAQs)
In theory, you can short a stock as long as you want. In practice, shorting a stock involves borrowing stocks from your broker, and your broker will likely charge fees until you settle your debt. Therefore, you can short a stock as long as you can afford the costs of borrowing.
